Apart from Myanmar, the other Asean country that is being closely watched is Indonesia, due to its stronger role in regional politics and economics, as well as noticeable policy implementations.

A number of auto-makers including Toyota, General Motors, Ford and Tata have raised their investment in Indonesia. These companies have announced plans for the construction of new assembly plants that would roll out new models aimed at tapping the fast-growing Indonesian middle class.

Toyota, for example, announced that it would raise production to 230,000 units per year in 2014 while GM is preparing to invest US$150 million to re-open its assembly plant for a 7-seater van after seven years. According to GM, the plant would produce 40,000 vehicles per year for both the domestic and export markets.

Auto sales in Indonesia are expected to reach 1 million in 2012, making it one of the world's largest markets. Meanwhile, its low vehicle ownership rate means there is much room for growth. Indonesia, in any case, is one of the fastest-growing markets in the world.

The Indonesian government recently confirmed plans to become the leader of Asean. It announced an eco-car project would hit the road this year and that the country would become a full-scale production base for hybrid-powered vehicles by 2020.

At the same time, the nation's motorcycle market is the third largest in the world after China and India. Honda and Yamaha are the market leaders in the market, which is expected to reach saturation by 2015.

The motorcycle ownership ratio in Indonesia is 2 people for 1 motorcycle, very much on the opposite scale as demand for automobiles grows amid the country's strong economic expansion.

Indonesian auto sales up 10.6% in Q1

Indonesian Automobile Industry Association vice chairman Johnny Darmawan said 249,589 vehicles were sold during the first quarter in Indonesia, up 10.6 per cent compared to the same period last year.

He said that auto sales are expected to reach 960,000 vehicles this year, up from 870,000 in 2011. Growth is expected to continue although the government plans to raise the minimum down payment.

The new policies launched by the Indonesian Central Bank require vehicle buyers, who apply for car loans at commercial banks, to place a 30-per-cent down payment.

The Indonesian Finance Ministry also introduced a new regulation requiring finance companies to ask for a 25-per-cent down payment. Most buyers in Indonesia purchase vehicles through auto loans from finance companies.

"We will not adjust our forecast although the Indonesian government is likely to raise fuel prices," Darmawan said, adding that his association is confident auto sales will remain at 80,000 vehicles per month on average.

Stable politics and economic growth

Indonesia has been applauded for developing its democracy. After Suharto's reign ended with the Asian financial crisis 1998, Indonesia struggled due to political instability.

Later and especially now, during the second term of President Susilo Bambang Yudhoyono, Indonesia has been able to create political stability and a rock-solid democracy.

Asst Prof Dr Kitti Prasertsuk, a lecturer at Thammasat University and coordinator of the Asean Watch project, said Indonesia is classified as a fast-emerging nation.

"Indonesia is about to be included in the group of fast-growing economies or BRICS (Brazil, Russia, India, China, South Africa) which could soon become BRIICS. Economically, Indonesia has grown significantly in the last four-five years with more than 6 per cent of GDP growth each year," he said.

"We can see that apart from [Malaysia's] Proton, all other Asean-made vehicles sold in Thailand are from Indonesia. This includes the Toyota Avanza, Honda Freed and many Suzuki models. So if you ask me which Asean country will become Thailand's main competitor in terms of the automobile industry, the answer is Indonesia, not Malaysia," he said.

Indonesian industry raises production

Indonesia serves as an important production base for Asean and attracts as much investment as Thailand. The Indonesian auto industry, like its Thai counterpart, is a production base for Japanese auto-makers, which makes up 86 per cent of the market.

Indonesia is also becoming a more interesting destination for investors thanks to various factors, including government support.

Last year, the country emerged as the largest Asean market for the first time with sales of 850,000 vehicles, while auto sales in Thailand, which was affected by the massive flood crisis, reached just 795,000.

In 2011, Indonesia designated itself as a major automobile manufacturing base for the Asean region. It plans to produce 1 million vehicles per year by 2013 and 2 million vehicles per year by 2020.

Indonesia is presently the second-largest auto producer in the region, with its 700,000-vehicle production in 2011 being less than half of Thailand's 1.6 million.

Among the factors supporting Indonesia is its 240 million people, who make up as much as 40 per cent of the total Asean population. This reflects the growth opportunities of the country's auto industry, supported by the fast economic growth that drives up demand.

There's more demand than supply for automobiles in Indonesia, especially for vehicles with engines below 2.5-litres as well as for light trucks 10 tonnes and under.

Moreover, the Indonesian government has offered tremendous investment promotions, both in terms of auto production and consumption to cater to increasing demand and to also lower the number of imported vehicles.

They include corporate tax exemption for 5-10 years (plus 50-per-cent reduction for another two years) that was introduced in August last year. This privilege is for investments of at least $117 million, with investors being required to hold 10-per-cent of the investment amount in the Indonesian Central Bank.

That was followed by exemption of VAT and import duty for goods in the raw material/intermediate material, which benefits imports of auto parts for local assembly.

The import duty for passenger cars and commercial vehicles ranges from 0-50 per cent, while the import duty for auto parts is 10 per cent, which is waived for Asean members. This would also benefit Indonesian investors who depend on raw materials from other Asean countries.

Indonesia also lowered income tax for investors who produce eco-friendly (22km/litre fuel economy, 80 per cent local content and Euro 3 emission) and low-priced vehicles.

Trade partner or rival?

Being part of the Japanese auto production network like Thailand, the relationship between Indonesia and Thailand is interdependent.

However, if the Indonesian auto industry expands and is able to continuously attract foreign investors, it could step up to become Thailand's arch rival.

Today, Indonesia is Thailand's close trading partner in the automobile industry. In 2011 Indonesia was the second-largest export market for Thai automobiles after Australia, taking in 12.5 per cent of Thai automotive exports to the global market. Passenger cars are the main product exported from Thailand to Indonesia (38.7 per cent), while auto parts make up 24.7 per cent.

Thai-made vehicles make up the largest chunk in Indonesia's imported vehicle market - 35 per cent. In the imported passenger car segment, Thai-made cars dominate with a 62.5-per-cent share, while in the commercial vehicle market, Thai-made vehicles are ranked No 2 after Japan, which has a 38-per-cent share.

According to the Indonesian Automobile Industry Association, the country imports approximately 200,000 vehicles per year. It also stated that during the Thai flood crisis, several auto assembly plants in Indonesia had to cease production due to a disruption in the supply of parts.

While auto production in Thailand concentrates on commercial vehicles such as the 1-tonne pickup truck, auto production in Indonesia mainly focuses on passenger cars, which makes up 71 per cent of total auto production.

Today Indonesia may not have a big role on the global stage, ranking No 34 in the world in terms of auto and transport equipment export. The export value of $2.8 billion is just 0.3 per cent of global exports, while Thailand ranks 17th with a 1.7-per-cent share. So at the international level, Indonesia needs more time to strengthen itself.

However, the increasing investments being made in Indonesia hint that the country is quickly gaining acceptance as an attractive investment location.

Meanwhile, the relationship between Thailand and Indonesia seems to be one of partners rather than opponents.

This is due to the difference in production. Besides, the growth in the Indonesian automotive sector would help drive up demand for auto parts and components from Thailand.